It seems you have two issues here. With respect to your second issue, if only one agent in the first group is free, it will ring this agent for the no answer time specified on that group, and then it will try to pass it to the next most idle agent. Because there are no other agents free (although the group still actually has a free agent) the call will overflow. This avoids the call staying on the one extension for long periods of time. This is normal beahviour.
You other issue however, does seem more like a problem. This is how things should be...
If all extensions in the Hunt Group are busy (ie. on a call, logged out or membership is disabled) or not answered, an Overflow Group can be used to take the calls. The Overflow Time can be used to stipulate how long a call will ring round the members of the Hunt Group before being passed to the Overflow Group.
If queuing is used with an overflow group, a call is sent to the Overflow Group after it has been held in the queue for the time specified by the Overflow Time.
If you are not getting this behaviour, I would suggest that you default your unit and test it, then upgrade it to the latest firmware. Can I ask why you are using 2.1.27? That is a very old build. If you need to keep 2.1 for CCC4, then you could upgrade to 2.1.44 which is an August release. Or even better, think about getting everything onto V3.
Final thing - is your group name all in CAPS. If so, try to avoid this. I have seen problems with users and groups which are all in uppercase.